The
Thomson
Reuters
Institute
and
Georgetown
Law’s
Center
on
Ethics
and
the
Legal
Profession
released
their
annual
State
of
the
U.S.
Legal
Market
report
today,
and
the
good
news
is
that
law
firms
are
absolutely
crushing
it.
Profits
are
up.
Rates
are
up.
Demand
surged
in
2025
at
levels
the
industry
hasn’t
seen
in
more
than
a
decade.
The
Am
Law
100
is
printing
money,
midsize
firms
are
having
a
moment,
and
everyone
is
congratulating
themselves
for
their
“resilience.”
Have
we
ever
seen
numbers
like
these
before?
*Laughs
nervously
in
Lehman
Brothers*
The
legal
industry
has
surged
like
this
before
—
in
2007
before
the
Global
Financial
Crisis
(GFC),
and
in
2021
before
an
inflation
crunch
—
and
each
time,
firms
that
mistook
altitude
for
stability
found
themselves
falling
furthest
when
conditions
shifted.
First
of
all,
it
seems
like
terminal
lawyer
brain
to
initialize
the
recession.
The
term
only
comes
up
three
more
times!
But
more
importantly,
the
market’s
present
exuberance
coincides
perfectly
with
past
crashes.
Take
a
moment
to
brush
off
that
resume.
The
report
opens
with
an
extended
metaphor
about
the
formation
of
the
Himalayas,
crediting
tectonic
forces
for
sending
peaks
soaring
into
the
atmosphere,
while
noting
that
“the
very
forces
creating
today’s
peaks
are
simultaneously
undermining
the
ground
beneath
them.”
For
the
legal
market,
this
translates
to
a
market
heavily
reliant
on
legal
problems
generating
hefty
profits
in
the
short
term
and
leaving
lawyers
unemployed
in
the
medium
term.
It’s
the
regulatory
whiplash
and
random
trade
wars
and
all
around
geopolitical
instability.
That’s
why
the
market
saw
peaks
in
both
transactional
work
and
counter-cyclical
work,
a
feat
the
report
describes
as
“highly
atypical,
again
except
for
in
periods
of
severe
market
disruption.”
If
chaos
is
a
ladder,
the
Trump
administration
is
a
mountain
range
and
the
legal
market
is
high
enough
to
start
getting
delusional
from
oxygen
deprivation.
Unfortunately,
once
you
hit
the
summit,
there’s
nowhere
to
go
but
down,
passing
the
corpses
of
2007
and
2021
along
the
way.
Throw
into
this
unstable
business
climate
the
fact
that
firms
are
pouring
money
into
artificial
intelligence
with
the
enthusiasm
of
a
tech
bro
who
just
discovered
ketamine.
Law
firms
increased
technology
spending
by
nearly
10%
in
2025,
racing
to
deploy
AI
tools
that
can
draft
briefs
and
analyze
contracts
in
minutes
instead
of
hours.
At
the
same
time,
they
increased
lawyer
compensation
by
8.2%
and
grew
headcount
by
2.9%.
At
the
same
time,
some
90%
of
all
legal
dollars
still
flow
through
standard
hourly
billing
arrangements.
Spending
more
to
do
work
in
less
time
while
getting
paid
by
time.
The
report
diplomatically
describes
this
as
creating
“an
almost
absurd
tension.”
It’s
why
the
billable
hour
should
get
a
serious
rethink
in
2026…
but
probably
won’t.
The
result
is
a
standoff
that
would
be
comical
if
the
stakes
weren’t
so
high.
Client
interviews
reveal
that
corporate
legal
departments
want
their
outside
law
firms
to
propose
innovative
billing
solutions
that
incorporate
AI’s
efficiencies,
while
law
firms
complain
that
clients
still
evaluate
everything
by
converting
it
back
to
hourly
rates.
Why
spend
months
developing
a
sophisticated
value-based
pricing
model
when
the
procurement
team
will
just
divide
the
total
by
estimated
hours
and
compare
it
to
last
year’s
rates?
This
is
why
legal
can’t
have
nice
things.
And
so
rather
than
figure
out
a
new
billing
solution,
clients
are
busy
figuring
out
how
to
cut
costs.
Why
move
to
value-based
billing
when
leaning
on
AI-optimized
hours
gives
clients
an
easy
place
to
nitpick?
Spending
going
down
right
when
law
firm
costs
are
going
up?
Sounds
troubling.
Thomson
Reuters
Market
Insights
research
calls
this
phenomenon
a
client
value
squeeze,
and
it’s
becoming
a
major
factor
behind
these
constrained
spending
choices
inside
corporate
legal
departments.
Even
as
86%
of
GCs
say
they
believe
they
are
making
significant
contributions
to
organizational
objectives,
nearly
90%
report
that
resource
limitations
are
preventing
them
from
delivering
the
level
of
strategic
impact
their
organizations
expect.
OK,
why
didn’t
we
abbreviate
this?
You
invent
a
new
term
and
don’t
give
it
the
“CVS”
treatment?
The
crucial
insight
here
isn’t
that
there
may
be
less
legal
work
on
the
horizon
—
if
anything,
the
complexity
and
chaos
guarantee
continued
need
for
legal
services.
Instead,
it’s
that
clients
are
being
forced
to
make
increasingly
brutal
choices
about
which
firms
get
their
limited
dollars.
The
math
isn’t
complicated.
When
Am
Law
100
lawyers
cross
the
$1,000/hour
threshold
while
everyone
else
averages
around
$600,
GCs
start
making
different
choices.
The
report
calls
this
“mobile
demand.”
Normal
people
might
call
it
“shopping
around.”
In
any
event,
between
high
costs
and
technology
narrowing
the
gap
between
what
big
and
small
firms
can
pull
off,
clients
see
more
value
at
lower
price
points.
Clients
actually
spent
less
per
hour
on
average
legal
services
in
2025
than
in
2024.
This
is
despite
firms
raising
rates
7.3%.
Pretty
clear
evidence
that
rate
hikes
are
pushing
work
downstream.
Midsize
firms
surged
ahead
with
nearly
5%
demand
growth
in
the
latter
half
of
the
year
while
the
Am
Law
100
couldn’t
crack
2%,
resulting
in
the
largest
percentage
point-spread
gap
in
demand
between
the
top
and
bottom
segments
since
the
GFC.
For
much
of
the
year,
the
Am
Law
100
actually
contracted
while
smaller
firms
captured
all
the
growth.
Indeed,
top
firms
needed
the
third
quarter’s
explosive
surge
just
to
crawl
into
positive
territory
for
the
year.
There’s
the
GFC
again,
which
still
sounds
like
an
ominous
Roald
Dahl
character.
But
while
the
report
forecasts
continued
need
for
legal
services
amidst
the
chaos,
it
does
see
that
need
shrinking
too:
Law
firms
are
doing
great
because
the
world
is
on
fire,
AI
is
poking
holes
in
their
pricing
model,
and
clients
are
running
out
of
patience.
That’s
not
a
golden
age;
it’s
a
sugar
high.
And
history
suggests
the
crash
will
come
right
after
everyone
finishes
congratulating
themselves
for
surviving
the
last
one.
And
here’s
the
part
that
should
really
keep
Biglaw
up
at
night.
After
the
2008
financial
crisis
—
sorry…
the
GFC
—
corporate
legal
departments
absorbed
laid
off
talent
and
used
this
newfound
talent
to
get
stingier
with
firms.
“Suddenly
GCs
had
former
Big
Law
lawyers
on
staff
who
knew
exactly
how
firms
made
up
their
bills,
which
matters
required
senior
attention,
and
what
work
could
be
done
for
a
fraction
of
the
price,”
the
report
notes.
This
rewiring
of
the
firm-client
relationship
played
a
key
role
in
the
rise
of
absurd
billing
guidelines
and
heightened
all-around
scrutiny.
If
this
comes
to
pass
again,
corporate
legal
departments
will
also
come
armed
with
AI
tools
capable
of
transforming
every
invoice
discussion
into
a
financial
colonoscopy.
And
their
rebound
hires
might
be
able
to
use
other
AI
products
to
move
in-house
all
that
work
that
once
required
the
brute
force
of
a
large
firm.
A
round
of
layoffs
that
give
clients
more
outside
counsel
refugees
could,
at
this
point,
tilt
the
balance
of
power
irrecoverably
toward
clients.
So
enjoy
the
view
from
the
summit!
Maybe
all
this
mountaineering
will
come
in
handy
when
firms
have
to
open
their
new
Greenland
offices.
Joe
Patrice is
a
senior
editor
at
Above
the
Law
and
co-host
of
Thinking
Like
A
Lawyer.
Feel
free
to email
any
tips,
questions,
or
comments.
Follow
him
on Twitter or
Bluesky
if
you’re
interested
in
law,
politics,
and
a
healthy
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college
sports
news.
Joe
also
serves
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Managing
Director
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Search.